You surely know gold budgeting rule 50/20/30. If not, this rule teaches us that 50% of our budget we should spend on necessities like rental payment, food etc. ; 20% we must invest in our future; 30% we may spend on things we want like new clothes, restaurants and so on. This very useful rule is absolutely meaningless if your earnings variate from month to month.
People with volatile income are in defenceless group that can have deep financial problems. A report published by Federal Reserve in May 2017 discovered that in 2016 nearly 33% of Americans coped with irregular incomes and nearly half of them had cash holes in their budgets.
The best advice for such people is forecasting financial situation ahead as much as possible. Several new tools were designed for that purpose, try to use them.
In addition, we prepared four pieces of advice to help you be financially sound:
1 Have certain amount on “black day”
Usually an emergency fund for six months is recommended, but for those with unsecured income it must cover nine months. The explanation is simple: if you lose income for several months, this amount of money will keep you afloat.
Surely you needn’t deposit the amount immediately. Just save a little each month, for example 10%. After 10-12 months you will have one month’s provision for emergency. Urban Institute made a study in 2016 on American families’ financial habits. It shows that families with small emergency funds cope with cash gaps more effectively than those without savings.
You need 21 days to get over the habit to save. Among interesting tools to help you do it is SaverLife.org program. This tool will show you visually how money you save begins to earn money for you.
2 Maintain your budget
Write down all your spendings. After analyzing them you will be able to forecast them. There are lots of tools, like Personal Capital or Mint, which help you estimate expenditures. Use one of them to trace your annual budget. Add rental payments, utilities, groceries, transportation, hobbies etc. Don’t forget to include quarterly and annual payments.
Then add your earnings for previous year. If earning covers spending, it’s all right. Just even surplus cash from high months to low ones. If not, you need to reduce planned expenses.
3 Use two current accounts
Separate your earnings from spendings. One account — for paychecks, another — for bills.
If you mix up many small checks you receive each month with many bills you pay, you wouldn’t see a clear picture of your earnings. Each week transfer cash from “debit” account to “credit” one. Better the amounts be equal.
4 Try an alternative to payday loans
If forecasting fails and you face a cash gap, shop around cheap alternatives to expensive payday loans or credit-cards. We gathered information on the most interesting programs on that field:
Even: deposits money in high months and refreezes them in low months. Cost: $3 a week
Dave: warns users if zero balance approaches. Gives small cash advances till payday. Cost: $1 per month.
Activehours: authorized users can take advances up to $100 against direct-deposit paychecks. Cost depends on option “tip”
Don’t use advances too often. Remember than all money you receive you must return and try to find a way to your monthly budget and savings plan as soon as possible.